Nearly 400 graduates in the Class of 2019 at Morehouse College in Atlanta will receive a stunning graduation gift — all their college debt wrapped up and paid off by Robert F. Smith, who started out as a chemical engineer and later founded the technology-focused investment firm Vista Equity Partners.
And truTV’s “Paid Off with Michael Torpey” returned in May with new episodes at 10 p.m. on Tuesdays. The comedy game show puts college graduates to a trivia test. The ultimate prize: Enough cash to pay off the winner’s college debt. The highest total winner from past episodes was Jess Kim, who won $62,758. Now, TV viewers also will have a shot at winning up to $3,000 to put toward their own student debt.
The notion that today’s student can carry the full cost of college by working full time in the summer, taking a part-time job during school and taking on a small amount of student loans is an idea whose time has passed. It’s just not cutting it for many families, even those at some state universities, given the fast-rising cost of college.
More companies — including some in South Florida — are starting to realize the financial stress facing student loan borrowers. And some employers have added benefits programs to help pay down student loans.
Among those is Suffolk Construction. With Florida’s nonstop construction in multifamily housing and commercial buildings and overall low unemployment, Suffolk has found itself competing for top talent as it hired 150 new Sunshine State employees over the past three years for projects including MiamiCentral, Met 3 and Jade Signature. Many are recent graduates who will be working in business administration, project management, field services and estimating.
Last year, it piloted a student-debt relief benefit, both to attract new employees and retain existing ones. Under the program, Suffolk pays $100 per month per employee directly to the debtor, for a cap of $10,000 per person total. Employees who leave the company don’t have to repay the money.
“We want these employees to be able to focus on their work, on their career paths and not so much on the cost of their education and more on the exciting future they have in our industry,” said Julie Palmer, director of people and culture for the Boston-based firm.
The program, administered by Gradifi, has been such a hit that Suffolk is considering raising the amount it pays next year. Of about 300 employees signed up nationwide, 77 are in Florida. Existing and new employees qualify.
“This is a relief to them. This has been an extremely positive benefit for engagement for our people,” Palmer said.
About 65% of college seniors who graduated from public and private nonprofit colleges in 2017 had student loan debt, according to the Project on Student Debt. Borrowers owed an average of $28,650, roughly 1% higher than the 2016 average. Updated figures will be released later this year.
Based on that 2017 data, the average debt for graduates from the private, historically black, all-male Morehouse College then was $31,833, with 80% of graduates carrying student loan debt.
For many Florida students, the load is a little lighter. At the University of Florida, where 36 percent of students graduate with debt, the average undergraduate tab is $27,713, according to UF. At Florida State, almost 50 percent of students take out loans; the average undergraduate loan debt is $22,840, the school says.
The sooner the debt is paid off, of course, the less interest builds over time. So it does help when a gift — maybe from parents or an employer — cuts into the outstanding student loan balance.
Smith’s unprecedented proclamation during his commencement address this spring is a huge break.
“Instead of devoting thousands of dollars a month to student loan payments or being in an income-driven repayment plan for decades, they will now be able to invest in themselves,” said Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com.
Yet most people can’t bet on a quick fix to the $1.5 trillion in student loan debt that’s outstanding nationwide.
“You have to make your own luck,” Kantrowitz said.
Here’s a look at strategies students and their families can use when it comes to student loans.
▪ Skip the grace period
College grads receive a six-month grace period before they have to start paying down student loans. Getting a diploma in May means many will begin to repay those loans in November.
But if you have unsubsidized federal student loans, the interest keeps building during that six-month period.
If you have $25,000 in college loan debt at graduation, you’re talking about saving $795 over 10 years if you have a loan rate of 5% and immediately make amortized payments after graduation, instead of delaying six months, Kantrowitz said.
On $25,000 in college debt, Kantrowitz said the monthly payments would be $265.16 if you immediately enter repayment. That would go up to $271.79 per month if you defer repaying during the grace period and then have the $625 in interest added to the loan balance.
▪ Track down your loans
Odd as it might sound, you need to know how much you owe and to whom. Create an account on the Federal Student Aid web site at Studentloans.gov to start.
You’d want to create an account with each loan company listed on the FSA site. Doing so will allow you to find your monthly payment for each loan servicing company and track your payments over time.
If you don’t track your student debt, you might overlook a loan and end up accidentally defaulting.
Once you begin repaying your college debt, sign up for automatic payment plans that can take a bit off the interest rate that you’d pay.
▪ Talk with parents
Parent PLUS loans are increasingly part of the picture when it comes to student loan debt.
While annual student loan borrowing peaked in 2010-11 and has declined for seven years in a row, to $105.5 billion in 2017-18, according to Credible.com., loans taken on by parents have grown.
Even after adjusting for inflation, PLUS loan borrowing has grown by 17% in the last seven years, to $23.1 billion. Private student lending has picked up even faster, growing by 36% to $11.6 billion, Credible.com noted.
In 2017-18, the parents of undergraduates borrowed an average of $16,452 in Parent PLUS loans, according to a recent Urban Institute analysis.
Dependent students who borrow the maximum amount of loans allowed are more likely than others to have parents who also borrow, according to the study.
“Parents appear to use PLUS loans to help fill the gap between the aid a student receives (both grants and loans) and the cost of attendance,” the Urban Institute study noted.
In some cases, parents are expecting that their adult offspring help to eventually pay off those loans. It’s critical to be clear about how those loans will be repaid.
▪ Tread with care
While some budget-friendly repayment plans make sense to help you avoid defaulting on your student loans, you need to realize that paying as little as you can now could dig you deeper into a debt.
To be sure, income-driven repayment plans can make a good deal of sense for many new college graduates who start out in a low salary but expect to see their paychecks grow significantly over time. Such students benefit by making small monthly payments now and bigger monthly payments later when they’re better able to afford it.
And in some cases involving an income-driven repayment plan, Public Service Loan Forgiveness could cancel the remaining debt after 120 qualifying payments — or 10 years or more of payments. But not everyone qualifies and the rules are complex.
And what about students who are stuck in low-paying jobs for years and years? They’re deferring making higher payments each month, while the interest is building and building under an income-driven plan.
Opting for the standard repayment plan for federal loans would trigger slightly higher payments than income-driven plans. Yet over the long run, you’d pay off your loan sooner and pay the least amount of interest.
College graduation season should remain a time of happiness and hope. But the reality is most grads really need to think about paying off those student loans nearly minutes after they take off that cap and gown.
This article was updated to correct the percentage of UF students who graduate with debt.